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Reuters – Oct 9, 2012

Iran will manage to bring its high inflation lower and return to growth next year despite Western sanctions over its nuclear program, according to projections from the International Monetary Fund.

The IMF forecasts, which also include a small trade surplus this year and next, suggest that although the sanctions are damaging Iran by cutting its oil exports, they are not likely to cause a collapse of its economy.

However, much of the IMF analysis is based on statistics provided by the Iranian government, which private economists say may not be reliable, and most of the report was prepared before Iran’s currency, the rial, plunged by about a third against the dollar in 10 days through October 2.

In its semi-annual World Economic Outlook, the IMF forecast Iran’s gross domestic product would shrink 0.9 percent this year after 2 percent growth in 2011.

Its prediction for this year was a downgrade from a forecast of 0.4 percent growth in its last report in April, but the IMF projected GDP would expand next year by 0.8 percent.

The IMF expects inflation to moderate to 21.8 percent in 2013 from 25.2 percent in 2012; many private economists, however, think inflation is well over 30 percent.

It predicted unemployment would hit 14.1 percent this year and 15.6 percent next, up from 12.3 percent in 2011.

Iran’s current account, its balance of trade in goods and services, is expected to enjoy a surplus of 3.4 percent of GDP this year and 1.3 percent next year, the IMF said.

That would be a big drop from a surplus of 12.5 percent in 2011, but the forecast still suggests it may not face a crippling balance of payments crisis due to the sanctions.

The forecasts assume an average global oil price of $106.18 a barrel in 2012 and $105.10 in 2013, the IMF said, but it did not detail many other assumptions behind its predictions, including the extent to which the sanctions would cut Iran’s oil exports. The sanctions’ impact has increased in the last several months, according to Western government officials.

As an international body, the IMF often faces a delicate balance in maintaining good relations with the countries it monitors while pressing them to provide accurate data and adopt economic policies it favors.

In July 2011, before Western sanctions were tightened, the IMF issued a report praising the Iranian government’s decision to slash energy and food subsidies, calling the policy “a unique opportunity for Iran to reform its economy and accelerate economic growth and development”.

Some private economists called the report over-optimistic, saying it underestimated the risk of the subsidy cuts causing runaway inflation and damaging consumer spending power.